Fashion Revolution

Beyond these changes in presentation, Rubel focused on the ultimate product. He implemented a "House of Brands" strategy, shifting the Payless product line from one comprised almost entirely of store brands to one dominated by well-known national brands. Payless now sells shoes under numerous brand names that it either owns or licenses, including Airwalk, Champion, Spalding, Dexter, Shaquille O'Neal-endorsed Dunkman, and various Disney brands. Rubel also acquired the Stride Rite chain and all its associated brands. To organize the new corporate structure and keep track of all the brands, he created a holding company (Collective Brands) as an umbrella over Payless, Stride Rite, and all the licensing activities for the company's brands.

To develop products that would resonate better with consumers, Payless stepped up its emphasis on fashion. The Payless Design Team, an in-house design group, dedicated itself to developing original footwear and accessory designs to keep new styles on target with changing fashion trends. Top designers from Kenneth Cole and Michael Kors were hired as full-time employees to head the new team.

But in perhaps the biggest move to raise the caché of the brand, Rubel started what it calls "Designer Collections." Aiming for the highest levels of haute couture, Payless has forged relationships with four top New York-based designers—Laura Poretzky, Lela Rose, Stacey Bendet, and Patricia Field. The four are designing everything from pumps to boots to handbags for Payless under the brands Abaete, Lela Rose, alice + olivia, and Patricia Field.

To support this design effort and the new Fashion Lab store format, Payless has done something really out of character. After signing its first designer, Laura Poretzky, Payless took its designs to the runway of New York's Fashion Week, the invitation-only event where designers debut fall fashions for the industry. In another first, Payless began running full-page ads in magazines such as Elle, Vogue, and W, featuring the tagline, "Look Again."

Can Payless's luxury-meets-low-price strategy work? Or will this go down as a disaster of two drastically different worlds that collided, crashed, and burned? "There's nothing cool about shopping at Payless," says skeptic Marian Salzman, a trends forecaster at a major ad firm. "It gets the cash-strapped working girl." But Rubel refutes this view, quickly pointing out that Payless shoppers have median household incomes that are higher than those of both Wal-Mart and Target. "All we've done is bring Payless into the twenty-first century. We're . . . speaking with greater clarity to who our customer already is."

Maxine Clark, former president of Payless and now CEO of Build-A-Bear Workshop, also recognizes the potential of the new strategy. "The customer who wants to buy Prada will not come to Payless. But this will energize the old customers who they lost and attract new ones." Mardi Larson, head of public relations for Payless, claims that the trendy new image is perfect for existing customers. "We target the 24-year-old demographic, because women in their 40s who shop for their family are nostalgic about that time in their lives, while [at the same time] teenagers aspire to that age group."

But what about that potential new customer? Does this risky venture into high fashion stand a chance of appealing to those who have never crossed the threshold of a Payless store? Rubel admits going after new customers. The "cheap chic" approach is attempting to lure 20-to-30-year-old women who are looking for something trendy. Given that such fashion-conscious females buy 50 percent more shoes than most current Payless customers, going after new customers make sense.

Perhaps Lela Rose's experience in 2007 best illustrates why Payless might just succeed in attracting this previously out-of-reach customer:

When actresses Sophia Bush and Brittany Snow landed backstage in Lela Rose's showroom at New York Fashion Week, they swooned over the designer's new shoe collection that was about to debut on the runway. Rose, best known for $1,500 frocks, happily handed pairs of navy peep-toe pumps and polka-dot round-toe pumps over to the young celebs, who would soon be flaunting them on the sidelines of the catwalk. "Did they know they were Payless shoes?" says Rose, who's now designing her fifth exclusive line for the discounter. "Absolutely. They didn't care. They looked cute to them and that's all that mattered."

Additionally, Payless is not the first to try this new direction. In fact, co-branded designer lines for retailers date back decades. But in recent years, the trend is proliferating. Karl Lagerfield has designed for Britain's H&M, Vera Wang has teamed up with Kohl's, Ralph Lauren has put store brands on JCPenney's shelves, and Todd Oldham has stepped out with Old Navy, to name just a few.

Although many ventures such as these have failed miserably, some have been wildly successful. Lela Rose claims that she would never have considered her arrangement with Payless if it hadn't been for the success of Target's alliance with Isaac Mizrahi. Mizrahi's couture career was pretty much on the rocks. Then, he started designing preppy cashmere sweaters, cheerful jersey dresses, and trendy trench coats for Target, all priced at under $40. With the low-rent strategy, Mizrahi became more popular and famous than ever. After that, he once again had high-end retailers knocking on his door. Since Mizrahi's successful entry to the mainstream in 2003, more than two dozen designers have co-branded with mass retailers.

PAYING LESS OR PAYING MORE?

There's more in it for Payless than just making the brand more attractive to both old and new customers. The company is looking to move its average price point up a notch or two. Whereas "higher price" is a relative term when most of a store's product line is priced below $15, higher margins are higher margins. Rubel has suggested that in many cases, price increases may be as little as 50 cents per pair of shoes. But the expansion of its brand portfolio to include famous labels will certainly give Payless greater pricing flexibility. And the designer collections will allow for some of the highest priced products that have ever graced its shelves—think $25 for pumps and up to $45 for boots. Whereas that is a substantial price increase from Payless's average, it's a bargain for fashion-conscious consumers.

One industry insider declares, "Fashion isn't a luxury, it's a right." With Rubel's mission to democratize fashion, it seems that this right is becoming a reality in the shoe world. The benefits of such democracy are plentiful. The designers get tremendous exposure, a large customer base, and the power and budget of a mass retailer. Payless gets brand cache, almost certain to transform its outdated image. And consumers get runway styles they can afford. Payless is banking that making everyone happy will ring up the sales and profits it needs.

Questions for Discussion

1. Which of the different product mix pricing strategies discussed in the text applies best to Payless's new strategy? Discuss this in detail.

2. How do concepts such as psychological pricing and reference pricing apply to the Payless strategy? In what ways does Payless's strategy deviate from these concepts?

3. Discuss the benefits and risks of the new Payless strategy for both Payless and the designers. Which of these two stands to lose the most?

4. Consider the scale on which Payless operates. How much of a price increase does Payless need to achieve in order to make this venture worthwhile?

Sources: Danielle Sacks, "The Fast 50 Companies," Fast Company, March 2008, p. 112; Maria Puente, "Top Designers Go Down-Market," USA Today, September 26, 2007, p. 11B; Eric Wilson, "The Big Brand Theory," New York Times Magazine, September 9, 2007, p. 74; Bruce Horovitz, "Payless Is Determined to Put a Fashionably Shod Foot Forward," USA Today, July 28, 2006, p. 1B; Nicole Zerillo, "Payless Launches 'I Love Shoes.'" PR Week, March 10, 2008, p. 3; and www. paylessinfo.com, accessed September 2008.

Chapter 12

Part 1 Defining Marketing and the Marketing Process (Chapters % 2)

Part 2 Understanding the Marketplace and Consumers (Chapters 3,4,5,6)

Part 3 Designing a Customer-Driven Strategy and Mix (Chapters 7,8, 9, 10, 11, 12, 13, 14, 15, 16, 17)

Part 4 Extending Marketing (Chapters 18, 19, 20)

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